Rule of 72
Given: $1000 to invest
Interest compounded 10% per year
Find:
a. How long will it take to double your money?
(This is the key to the 'rule of 72').
b. What is the effective monthly interest rate?
Auto Purchase
Given: A new TU engineer
purchases a new Whizmobile
for $30,000.
She borrows the money at an
interest of 1%/mo. (that's high)
Loan period is 60 months.
Find:
a. Future value, if a single balloon payment is made at 60 months.
b. Monthly payments if made at the end of each month.
c. Total amount paid (cashflow)
d. Total Interest paid
e. Amount unpaid after 12 months
f. Assume the same monthly payments were deposited in savings program.
The account pays 1% per month.
How many months would it before you had $25,000?
Retirement
Savings
Given: Uninflated growth of
capital is 3% per year.
You begin paying into a retirement
program when you turn 25.
After25 years, you begin collecting $60,000 annually
You collect for 40 years.
Find:
a. What is the present value of the annuity?
b. What are your annual contributions to have that amount in
the account?
c. How much will be in the account when
you begin collecting?
d. Is the annual contribution a reasonable amount to expect you can contribute after you pay taxes on a $60,000 salary?
e. Wait 35 years to begin collection and receive for 30 years. Do you contribute more or less each month?
f. To retire at 50, what is the best approach?
House
Purchase 1
Given: Engineer with a
salary of $60,000 per year.
Federal and state income tax
of 25%
Mortgage company will lend
2.5 times
the annual salary for a house.
Interest rate is 7% per year.
Loan period is 30 years.
Use: Uniform series of annual payments procedure.
Find: Create a
spreadsheet with the following columns.
Calculate the values for the
end of each
year.
a. Principal remaining at start of year
b. Interest owed for year
c. Annual payment
d. Amount of payment that is principal
e. Total payments to date
f. Total interest to date
g. Double the payment.
Apply the extra amount to principal only.
Tabulate the lower principal remaining.
How long does it take to pay off the loan with double payments?
House
Purchase 2
Calculate the following items for a 15 year loan.
a. Total cash flow (amount paid).
b. Total interest paid.
House
Purchase 3
The next sections will be added
to the spreadsheet
after taxes are discussed.
a. Effect on income tax for interest paid
b. Cash flow after taxes
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